Chapter 3 of the Filing Requirements for Transmission and … requirements... · Requirements for Transmission and Distribution Applications, dated July 22, 2009. The requirements

Ontario Energy Board

Commission de l’énergie de l’Ontario

Chapter 3 of the Filing Requirements for

Transmission and Distribution Applications

July 9, 2010

Revision 2.0 1 July 9, 2010

Table of Contents

CHAPTER 3 FILING REQUIREMENTS FOR INCENTIVE REGULATION MECHANISMS FOR ANNUAL RATE ADJUSTMENTS 4

1.0 Introduction 4 1.1 Key References 5 1.2 Rate Adder versus Rate Rider 6 1.2.1 Rate Adder 6 1.2.2 Rate Rider 6 1.2.3 Materiality for Rate Adders and Rate Riders 6 1.3 Grouping for Filings 7 1.4 Components of the Application Filing 9 1.5 Bill Impacts 9 1.6 Applications and Electronic Models 10

2.0 IRM2 and IRM3 Common Adjustments 10 2.1 Price Cap Adjustment 10 2.2 Z-factor Claims 11 2.2.1 Eligibility Criteria for Z-factor Amounts 11 2.2.2 Materiality Threshold 12 2.2.3 Z-factor Filing Guidelines 13 2.2.4 Other Matters in Relation to Z-Factors 14 2.2.5 Z-factor Accounting Treatment 14 2.3 Smart Meter Funding Adder 14 2.4 Low Voltage Service Charges 15 2.5 Lost Revenue Adjustment Mechanism (LRAM) and/or Shared Savings Mechanism (SSM) Cost Claims 15 2.6 Electricity Distribution Retail Transmission Service Rates 16 2.7 Electricity Distribution Deferral and Variance Accounts 16 2.8 Distribution System Plans - Filing under Deemed Conditions of Licence 17 2.9 Other Rate Adjustments 18

3.0 IRM2-Specific Adjustments 19 3.1 Tax Changes 19

4.0 IRM3 Specific Adjustments 19 4.1 Incremental Capital Module 19 4.1.1 ICM Threshold 20 4.1.2 ICM Filing Guidelines 21 4.1.3 ICM Reporting Requirements 22 4.1.4 ICM Accounting Treatment 22 4.1.5 Rate Generator and Supplemental Filing Module for ICM 23 4.2 Tax Changes in Relation to the Z-factor 23 4.3 Revenue-to-Cost Ratio Adjustments 24

5.0 Specific Exclusions from IRM Applications 24

6.0 Off-ramps 25

Appendix A: Disposition of Residual Balance to USoA Account 1590 or 1595 26

Revision 2.0 July 9, 2010 2


Appendix B: Application of recoveries to principal and interest carrying charges amounts in accounts 1590 and 1595 27

Chapter 3 Filing requirements for incentive regulation mechanisms for annual rate adjustments

1.0 Introduction

The Ontario Energy Board regulates the rates of electricity distributors using a

combination of annual incentive rate mechanism (“IRM”) adjustments and periodic cost

of service reviews.

The examination and decision on an application is based on the evidence filed in that

case. This ensures that all interested parties to the proceeding have an opportunity to

see the evidence, participate meaningfully in the Board’s process, and understand the

reasons for the decision in that case. To help ensure that there is a complete record,

the applicant must meet all of the applicable Filing Requirements.

The filing requirements herein replace version 1.0 of Chapter 3 of the Filing

Requirements for Transmission and Distribution Applications, dated July 22, 2009. The

requirements set out the Board’s expectations for filings by electricity distributors that

are applying for annual rate adjustments under the 2nd and 3rd Generation IRM plans.

Electricity distributors that have completed a cost of service application for the 2008 rate

year and beyond are eligible to file a 3rd Generation IRM rate application (“IRM3”).

Electricity distributors that have not re-based subsequent to their 2006 EDR application

are eligible to file a 2nd Generation IRM (“IRM2”) application.


1.1 Key References

The documents listed below are key to understanding these Filing Requirements:

Report of the Board on Cost of Capital and 2nd Generation Incentive Regulation

Mechanism for Ontario’s Electricity Distributors (filing guidelines: Appendix F) –

December 20, 2006;

Guidelines for Electricity Distributors’ Conservation and Demand Management –

March 28, 2008;

Report of the Board on 3rd Generation Incentive Regulation for Ontario’s

Electricity Distributors– July 14, 2008;

Supplemental Report of the Board on 3rd Generation Incentive Regulation for

Ontario’s Electricity Distributors – September 17, 2008;

Addendum to the Supplemental Report of the Board on 3rd Generation Incentive

Regulation for Ontario’s Electricity Distributors – January 28, 2009;

Guideline (G-2008-0001) on Retail Transmission Service Rates – October 22,

2008 (Revision 2.0 July 8, 2010 and any subsequent updates);

Guideline (G-2008-0002) on Smart Meter Funding and Cost Recovery – October

22, 2008 (and any subsequent updates);

Report of the Board on Electricity Distributors’ Deferral and Variance Account

Review Initiative (EDDVAR) – July 31, 2009; and

Filing Requirements: Distribution System Plans – Filing under Deemed

Conditions of Licence EB-2009-0397 March 25, 2010.


1.2 Rate Adder versus Rate Rider

1.2.1 Rate Adder

A rate adder (or funding adder) is a tool designed to provide advance funding on an

interim basis to distributors for certain investments or expenses as prescribed by the

Board and to mitigate or smooth the anticipated rate impact when recovery of these

costs are approved by the Board. Approval of a rate adder does not constitute

regulatory approval of any costs actually incurred. The prudence of such costs is

examined, and the costs are approved in whole or in part, at the time at which the

distributor brings the matter forward for regulatory review.

Rate adders are identified and listed separately on a distributor’s Tariff of Rates and

Charges without an explicit sunset or termination date.

1.2.2 Rate Rider

A rate rider differs from a rate adder in that it is designed to recover or refund Board-

approved amounts following a prudence review.

Rate riders are identified and listed separately on a distributor’s Tariff of Rates and

Charges, with an explicit sunset or termination date.

1.2.3 Materiality for Rate Adders and Rate Riders

Rate adders and rate riders normally apply to one or more select rate classes on a fixed

basis, a volumetric basis or a combination of both. A rate adder or rate rider is usually

determined by dividing the Board-approved allocated amounts by the Board-approved

forecast or historical energy use or demand,.


Occasionally, the calculated rate adders or rate riders for one or more rate classes may

be negligible. The Board has determined in the event where the calculation of one or

more rate classes’ rate adder or rate rider results in energy-based kWh rate riders of

$(0.0000) when rounded to the fourth decimal place and demand-based kW rate riders

of $(0.00) when rounded to the second decimal place, the entire Board-approved

amount for recovery or refund shall be recorded in a USoA account to be determined by

the Board for disposition in a future rate setting.

1.3 Grouping for Filings

The Board will assign electricity distributors in one of six application groupings noted

below based on the expected level of complexity of the application.

The length of time required to review an application is commensurate upon its level of

complexity. The applications of greater complexity and hence requiring more time to

review will be required to be filed first. Staggering of the applications allows the Board

and other stakeholders to appropriately schedule resources to allow for adequate

review of the applications. The deadlines for filing an IRM application have been

determined so that, in the normal course of events, a Decision and Order would be

issued in time for a May 1 implementation date.

The application deadlines are as follows.

Friday September 17, 2010

Friday October 1, 2010



Friday November 12, 2010

Friday November 26, 2010



Board staff will survey potential IRM applicants in July 2010 requesting that applicants

identify the expected elements of their IRM application for the purpose of assisting the

Board in assigning a filing deadline for each electricity distributor. Applicants expected

to include one or more of the following elements in their application will be assigned an

earlier filing date:

LRAM/SSM recovery;

Revenue-to-Cost Ratio Adjustments;

Rate Harmonization pursuant to a prior Board decision;

Z Factor claim;

Incremental Capital Module claim; and

Renewable Generation and/or Smart Grid Rate Adder request.

The assignment of distributors under these filing dates will be identified in a separate

communication.

1.4 Components of the Application Filing

Each application must include:

A Manager’s Summary thoroughly documenting and explaining all rate

adjustments applied for;

A completed Rate Generator1 with supplemental filing modules2 or work forms,

provided by the Board, both in electronic (i.e. Excel) and PDF form;

A PDF copy of the current Tariff Sheet;

A PDF copy of the facsimile tariff sheet generated by the Rate Generator; and

A PDF copy of the bill impacts generated by the Rate Generator.

1.5 Bill Impacts

The Rate Generator includes a bill impact analysis by rate class and produces total bill

impacts excluding any changes to the Debt Retirement Charge (DRC), Special

Purpose Charge (SPC), the Regulated Price Plan (RPP) and sales tax. This analysis is

similar to that used in assessing rate applications in recent years. The latest RPP and

sales tax rates at the time of publication of the Rate Generator model will be used and

will remain unchanged for the duration of the application process.

For the Board’s Notice of Application and other public communication purposes, the bill

impacts used will be based on the “Delivery” component as shown on a Standardized

Bill for a residential customer using 800 kWh per month and a General Service Less

than 50 kW customer using 2,000 kWh per month.

1 The Rate Generator is a Board-provided Microsoft Excel workbook designed to translate a distributor’s current tariff of rates and charges stepwise to the proposed tariff of rates and charges in an IRM Application. 2 A supplemental filing module is a Board-provided Microsoft Excel workbook designed to calculate one or more complex rate adjustments which results are entered as a component in the Rate Generator.


1.6 Applications and Electronic Models

The models prepared by Board staff are provided to assist the distributor in filing a rate

application. An application to the Board is the distributor’s responsibility and the Board

expects that the application will be complete and accurate. While Board staff may issue

electronic filing models for use in IRM rate applications, the distributor bears the

responsibility to ensure the accuracy and appropriateness of any models that it uses in

supporting its application. The distributor is responsible for advising the Board of any

concerns it may have regarding calculations flowing from the models. Utilization of

Board staff models does not necessarily constitute Board acceptance.

2.0 IRM2 and IRM3 Common Adjustments

2.1 Price Cap Adjustment

The Board has determined that the Gross Domestic Product Implicit Price Index for

Final Domestic Demand (GDP-IPI) as published by Statistics Canada for the prior

calendar year will be used as the price escalator for the IRM applications. Board staff

prepared models will originally include the preceding year’s GDP-IPI value as an

estimate of the inflationary adjustment to input prices (i.e. costs) for the upcoming rate

year. Statistics Canada publishes the prior year’s data at the end of February. Upon

publication by Statistics Canada, the Board will issue a letter establishing the updated

GDP-IPI and will update the GDP-IPI in each distributor’s rate application model in order

to calculate the price cap adjustment index for distribution rates for all applicants.

The price cap adjustment index is determined as the annual percentage change in the

GDP-IPI less the X-Factor. For IRM2, the X-factor is 1%. For IRM3, the X-factor is

0.72% plus a stretch factor. The value of the stretch factor is specific to each distributor

for each rate year, and will be one of the following values: 0.2%; 0.4%; or 0.6%. Each

distributor’s stretch factor will be determined by the Board. The distributor specific


stretch factors will not be available before the application is filed. Therefore, the IRM

Model will include a proxy stretch factor of 0.4%. Once the updated groupings are

determined, the Board will adjust the stretch factor in each distributor’s individual rate

application model.

The price cap adjustment will be applied to the Service Charge and Distribution

Volumetric Rate. The price cap adjustment will not be applied to the Rate Adders, Rate

Riders, Low Voltage Service Charges, Retail Transmission Service Rates, the

Wholesale Market Service Rate, the Rural Rate Protection Charge, the Standard Supply

Service – Administrative Charge, microFIT service charge, Specific Service Charges,

Allowances3, Retail Service Charges or Loss Factors.

2.2 Z-factor Claims

Z-factors are intended to provide for unforeseen events outside of a distributor’s

management control and the cost must be material and incremental. A distributor must

follow the guidelines listed below when applying to the Board to recover the amounts

that the distributor has recorded in a Board-approved deferral account related to a Z-

factor claim.

2.2.1 Eligibility Criteria for Z-factor Amounts

The eligibility criteria for a request to recover amounts by way of a Z-factor are

discussed in section 2.6 of the Board’s Report on 3rd generation incentive regulation –

July 14, 2008, and are summarized in Table 1 below. The Board expects that any

application for a Z-factor will be accompanied by a clear demonstration that the

management of a distributor could not have been able to plan and budget for the event

and that the harm caused by extraordinary events is genuinely incremental to their

experience or reasonable expectations. In order for amounts to be considered for

3 Transformation and primary metering allowances and any other allowances the Board may determine.


recovery by way of a Z-factor, the amounts must satisfy all three eligibility criteria set out

in Table 1.

Table 1: Z-factor Amount Eligibility Criteria

Criteria Description

Causation Amounts should be directly related to the Z-factor event.

The amount must be clearly outside of the base upon which

rates were derived.

Materiality The amounts must exceed the Board-defined materiality

threshold and have a significant influence on the operation

of the distributor; otherwise they should be expensed in the

normal course and addressed through organizational

productivity improvements.

Prudence The amount must have been prudently incurred. This

means that the distributor’s decision to incur the amount

must represent the most cost-effective option (not

necessarily least initial cost) for ratepayers.

2.2.2 Materiality Threshold

For IRM2 applicants the Board has limited Z-factor claims to changes in tax rules and to

natural disasters. Recovery is reserved for amounts that have a significant influence on

the operation of the distributor. An expense will be considered material if it exceeds

0.2% of total distribution expenses before taxes, and a capital cost will be considered

material if it exceeds 0.2% of net fixed assets. This materiality threshold must be met

on an individual event basis in order for the relevant costs to be eligible for potential

recovery.

For IRM3 applicants the Board has determined that the following materiality thresholds

will apply:


$50,000 for a distributor with a distribution revenue requirement less than or

equal to $10 million;

0.5% of distribution revenue requirement for a distributor with a revenue

requirement greater than $10 million and less than or equal to $200 million; and

$1 million for a distributor with a distribution revenue requirement of more than

$200 million.

As with the IRM2 claims, the IRM3 threshold must be met on an individual event basis

in order for costs to be eligible for potential recovery.

2.2.3 Z-factor Filing Guidelines

A distributor must submit evidence that the costs which were incurred meet the three

eligibility criteria outlined above.

A distributor must notify the Board by letter to the Board Secretary of all Z-factor

events. Failure to notify the Board within six months of the event may result in

disallowance of the claim.

A distributor must apply to the Board for any cost recovery of amounts recorded

in the Board-approved deferral account claimed under Z-factor treatment. This

will allow the Board and any affected distributor the flexibility to address

extraordinary events in a timely manner. Subsequently, the Board may review

and prospectively adjust the amounts for which Z-factor treatment is claimed.

The Board requires that any request for a Z-factor will be accompanied by a clear

demonstration that the management of the distributor could not have been able

to plan and budget for the event and that the harm caused by the event is

genuinely incremental to its experience or reasonable expectations.

The costs must be incremental to those already being recovered in rates as part

of ongoing business exposure risk.


2.2.4 Other Matters in Relation to Z-Factors

As part of its claim, a distributor must outline the manner in which it intends to allocate

the incremental revenue requirement to the various customer rate classes, the rationale

for the selected approach and a discussion of the merits of alternative allocation

methods.

Recovery will be through a rate rider. The request must specify whether the rate

rider(s) will apply on a fixed or variable basis or a combination thereof, and the length of

the disposition period. A detailed calculation of the rate rider(s) must be provided.

2.2.5 Z-factor Accounting Treatment

The distributor will record eligible Z-factor cost amounts in Account 1572, Extraordinary

Event Costs, of the Board’s Uniform System of Accounts (the “USoA”) contained in the

Accounting Procedures Handbook (“APH”) for electricity distributors.

Monthly carrying charges shall be recorded in Account 1572. Carrying charges are

calculated using simple interest applied to the monthly opening balances in the account

and recorded in a separate sub-account of this account. The rate of interest shall be

the rate prescribed by the Board for deferral and variance accounts for the respective

quarterly period published on the Board’s web site.

2.3 Smart Meter Funding Adder

The Smart Meter Funding adder is currently applied to all metered customers in

accordance with the Board’s Decision RP-2005-0020/EB-2005-0529 and as

subsequently revised in Board Decisions and Rate Orders for each distributor. This

funding adder is not subject to the price cap adjustment.


Requests for changes to smart meter funding adders should comply with the latest

version of the Board Guideline G-2008-0002 Smart Meter Funding and Cost Recovery.

The Rate Generator Model will also include a schedule for a distributor to include the

rate adder on the proposed Tariff of Rates and Charges.

The rate adder will be explicitly shown on the distributors’ Tariff of Rates and Charges,

identified as the “Smart Meter Funding Adder”.

2.4 Low Voltage Service Charges

Prior to the 2010 rate year, the costs associated with the recovery of low voltage

charges were included in the Distribution Volumetric rate in accordance with the 2006

Electricity Distribution Rate Handbook and as revised in the Board’s subsequent

Decisions and Rate Orders. Because these costs had been included in the

determination of the volumetric rate, the amount had been adjusted by the annual price-

cap adjustments.

In the 2010 rate applications, the Board determined that, where applicable, the rate to

recover the low voltage costs would be explicitly shown separately on the distributor’s

Tariff of Rates and Charges, identified as the “Low Voltage Services Charge”.

As was the case for the 2010 applications, the Board has determined that for 2011 the

level of the current Low Voltage Services Charges will not be subject to the price-cap

adjustment.

2.5 Lost Revenue Adjustment Mechanism (LRAM) and/or Shared Savings Mechanism (SSM) Cost Claims

A distributor filing for LRAM and/or SSM cost claims must comply with the Guidelines

for Electricity Distributor Conservation and Demand Management (EB-2008-0037)

issued March 28, 2008.


2.6 Electricity Distribution Retail Transmission Service Rates

Electricity distributors are charged the Ontario Uniform Transmission Rates (“UTRs”) at

the wholesale level and subsequently pass these charges on to their distribution

customers through the Retail Transmission Service Rates (“RTSRs”). The UTRs are

charges for network, line connection and transformation connection services.

For 2011, distributors shall adjust their RTSRs based on a comparison of historical

transmission costs adjusted for new UTR levels and revenues generated from existing

RTSRs. This approach is expected to minimize variances in USoA Account 1584 and

1586. A Board staff prepared filing module will be provided to distributors at the time of

the release of the Rate Generator to assist in calculating the distributor’s and rate class

specific RTSRs.

The G-2008-0001 Guideline Electricity Distribution Retail Transmission Service Rates

has been amended, as of July 8, 2010 to reflect this approach.

2.7 Electricity Distribution Deferral and Variance Accounts

The Report of the Board on Electricity Distributors’ Deferral and Variance Account

Review Report (the “EDDVAR Report”) provides that during the IRM plan term, the

distributor’s Group 1 audited account balances will be reviewed and disposed if the

preset disposition threshold of $0.001 per kWh (debit or credit) is exceeded. The onus

is on the distributor to justify why any account balance in excess of the threshold should

not be disposed.

Group 1 consist of the following USoA accounts:

• 1550 Low Voltage Account;

• 1580 RSVA Wholesale Market Service Charge Account;


• 1584 RSVA Retail Transmission Network Charges Account;

• 1586 RSVA Retail Transmission Connection Charge Account;

• 1588 RSVA Power (Including Global Adj. Sub a/c) Account;

• 1590 Recovery of Regulatory Asset Balances Account; and

• 1595 Disposition and Recovery of Regulatory Balances Account.

The EDDVAR Report states that the disposition period to clear the Group 1 account

balances by means of a rate rider should be one year. However, a distributor could

propose a different disposition period to mitigate rate impacts or address any other

applicable considerations, where appropriate.

Subsequent to the release of the EDDVAR Report, exogenous events resulted in

significant increased balances in the USoA Account 1588 global adjustment sub-

account for most electricity distributors. The global adjustment sub-account captures

the difference between the IESO’s estimated value billed to non-RPP customers by the

distributor and the actual amount paid by the distributor to the IESO. During the 2010

EDR process, the Board determined in most cases that a separate rate rider that would

apply prospectively to non-RPP customers should be established to dispose of the

global adjustment sub-account.

2.8 Distribution System Plans - Filing under Deemed Conditions of Licence

The Filing Requirements: Distribution System Plans - Filing under Deemed Conditions

of Licence (EB-2009-0397) issued on March 25, 2010 recognized that distributors may

need additional funding for expenditures proposed in a GEA Plan between cost-of-

service applications. For 2011 IRM applications, distributors may request the following:

Renewable Generation Connection Funding Adder; and

Smart Grid Funding Adder.


Where a distributor seeks a funding adder (i.e. the prudence of the expenditures will not

be determined by the Board), sufficient information must be provided to allow the Board

to assess the need for the mechanism and the nature and quantum of the costs to be

collected from ratepayers and the basis for calculating the funding adder.

In the distribution system plan filing requirements, the Board created two additional

deferral accounts to record the amounts collected from ratepayers through the funding

adders:

Account 1533: Renewable Generation Connection Funding Adder Deferral

Account

This account will record the revenues collected through a funding adder

approved by the Board related to renewable generation connection projects.

Separate sub-accounts shall be used to record any amounts collected from a

distributor’s ratepayers and any amounts received from the IESO (pursuant to

the provincial pooling mechanism set out in 79.1 of the OEB Act) in respect of the

projects.

Account 1536: Smart Grid Funding Adder Deferral Account

This account will record the revenue collected through a funding adder approved

by the Board related to smart grid development.

2.9 Other Rate Adjustments

The Rate Generator will be made available on the Board’s web site and is designed to

facilitate multiple forms of adjustments. The model will include only generic types of

base rate adjustments, rate adders and rate riders common to most applicants. Where a

distributor has continuing adjustments, and/or rate adders and/or rate riders from

previous decisions not shown in the generic model (such as the phased implementation

of a rate harmonization process) the distributor should contact the Board for specific

guidance.


3.0 IRM2-Specific Adjustments

3.1 Tax Changes

The Board has determined that currently known legislated tax changes, other than that

related to the implementation of the Harmonized Sales Tax4 , from the level reflected in

the Board-approved base rates for a distributor will be reflected in the IRM adjustments.

The calculated annual tax adjustment rates will be allocated to customer rate classes on

the basis of the 2006 EDR Board-approved base year revenue requirement.

The Rate Generator will include a schedule for a distributor to complete, which will

calculate the amount to be adjusted from base rates.

4.0 IRM3 Specific Adjustments

4.1 Incremental Capital Module

The incremental capital module (ICM) is intended to address the treatment of new

capital investment needs that arise during the IRM plan term which are incremental to

the materiality threshold defined below.

The eligibility criteria for applications to recover amounts through rates related to

incremental capital investment needs are included in section 2.5 of the Board’s July 14,

2008 Report and are reproduced below.

4 With respect to the July 1, 2010 introduction of the Harmonized Sales Tax (“HST”), the Board will issue guidance with respect to the treatment of the impacts arising out of the implementation of the HST in the future.


4.1.1 ICM Threshold

The materiality threshold for requests to recover amounts through rates to fund

incremental capital investment needs is discussed in section 2.3 of the Supplemental

Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity

Distributors EB-2007-0673.

The Board has determined that the following formula is to be used by a distributor to

calculate the materiality threshold that will apply to it:

The value for “g” is the % difference in distribution revenues between the most current

complete year and the base year.


4.1.2 ICM Filing Guidelines

The Board requires that a distributor requesting relief for incremental capital during the

IRM3 plan term must include comprehensive evidence to support the claimed need, that

should include the following:

1) Details by project for the proposed capital spending plan for the test year

segregated between discretionary and non-discretionary;

2) Demonstration that the distributor’s non-discretionary spending exceeds the

threshold test;

3) A description of the proposed non-discretionary capital projects and expected in-

service dates;

4) Demonstration that the proposed non-discretionary capital projects are unusual

and unanticipated;

5) Calculation of the revenue requirement associated with each proposed

incremental non-discretionary capital project (i.e. the cost of capital, incremental

depreciation, and PILs);

6) Calculation of revenue requirement offsets associated with each incremental

non-discretionary projects due to revenue to be generated through other means

(e.g. customer contributions in aid of construction, load growth); and


7) Calculation of a rate adder to recover the incremental revenue from each class

and the rationale for the proposed approach.

4.1.3 ICM Reporting Requirements

A distributor that receives rate relief through this module will be required to report to the

Board annually on the actual amounts spent. At the time of the next rebasing, the

distributor will file a calculation of the amounts to be incorporated in rate base. At that

time the Board will make a determination on the treatment of any difference between

forecast and actual capital spending during the IRM plan term. Overspending and

underspending will be reviewed at the time of rebasing.

4.1.4 ICM Accounting Treatment

The distributor will record eligible ICM amounts in Account 1508, Other Regulatory

Asset, sub-account Incremental Capital Expenditures, subject to the assets being used

and useful. For incremental capital assets under construction, the normal accounting

treatment will continue in the construction work in progress (“CWIP”) prior to these

assets going into service and hence eligible for recording in the 1508 sub-account. The

amortization of capital assets for the relevant accounting period will be recorded in a

separate amortization account of the sub-account, Incremental Capital Expenditures. In

addition, the revenues collected from the rate adder will be recorded in Account 1508,

Other Regulatory Asset, sub-account, Incremental Capital Expenditures rate adder.

The distributor shall also record monthly carrying charges in sub-accounts Incremental

Capital Expenditures and Incremental Capital Expenditures rate adder. Carrying

charges amounts are calculated using simple interest applied to the monthly opening

balances in the account and recorded in a separate sub-account of account 1508. The

rate of interest shall be the rate prescribed by the Board for deferral and variance

accounts for the respective quarterly period published in the Board’s web site.


4.1.5 Rate Generator and Supplemental Filing Module for ICM

The supplemental filing module supporting Board staff’s IRM3 Rate Generator will assist

the distributor in calculating the distributor’s threshold. The distributor will then tabulate

the value of its eligible non-discretionary investments and compare this to the threshold.

Severable calculation work forms will be provided to calculate the revenue requirement

for each project proposed for inclusion in the ICM request in the supplemental filing

module. Once all work forms are completed and listed in the supplemental module, the

tabulated revenue requirement result will be translated into a rate rider.

4.2 Tax Changes in Relation to the Z-factor

The Board has determined that a 50/50 sharing5 of the impact of currently known

legislated tax changes, other than that related to the implementation of the Harmonized

Sales Tax6, as applied to the tax level reflected in the Board-approved base rates for a

distributor, is appropriate. The calculated annual tax changes over the plan term will be

allocated to customer rate classes on the basis of the most recent Board-approved

base-year distribution revenue. These amounts will be collected from or refunded to

customers each year of the plan term, over a 12-month period, through an explicit

volumetric rate rider derived using annualized consumption by customer class

underlying the Board-approved base rates.

The supplemental filing module will include a schedule for a distributor to complete that

will calculate the volumetric rate rider.

5 Supplemental Report of the Board on 3rd generation incentive regulation – September 17, 2008 6 With respect to the July 1, 2010 introduction of the Harmonized Sales Tax (“HST”), the Board will issue guidance with respect to the treatment of the impacts arising out of the implementation of the HST in the future.


4.3 Revenue-to-Cost Ratio Adjustments

The Board’s Decisions for some distributors’ 2008, 2009 and 2010 cost of service rate

applications prescribed a phase-in period to adjust the revenue-to-cost ratios. The

Supplemental Filing Module and Rate Generator will include schedules for a distributor

to complete to address this matter. The process will adjust base distribution rates

before the application of the price cap adjustment.

5.0 Specific Exclusions from IRM Applications

The IRM application process is intended to streamline the processing of a large volume

of rate adjustment applications, and is therefore mechanistic in nature. For this reason,

the Board has determined that the IRM process is not the appropriate venue by which a

distributor should seek relief on issues which are substantially unique to an individual

distributor or more complicated and potentially contentious. The following are examples

of specific exclusions from the IRM rate application process:

Smart Meter Cost Recovery Rate Rider;

Rate Harmonization, other than that pursuant to a prior Board decision;

Loss Factor Changes;

Loss Carry Forward Adjustments to PILs/taxes; and

Loss of Customer Load.

Exclusions from the IRM process are to be addressed in the distributor’s next cost of

service application.



6.0 Off-ramps

An off-ramp is based on a pre-defined set of conditions under which the IRM plan would

be terminated or modified before its normal end-of-term date. This usually occurs

because of extreme events that cannot be effectively addressed, or that should not be

addressed, through Z-factor treatment or some other IRM mechanism such as earnings

sharing or ICM.

For IRM2, there are limited adjustments available to a distributor. An off-ramp is

available where these adjustments proved insufficient for specific cost pressures (e.g.

additional capital investment). Where this is the case, a distributor must file a

comprehensive cost of service application and not rely on the simplified filing

requirements in the IRM2 process.

For IRM3, the Board has determined that the plan will include a trigger mechanism with

an annual ROE dead band of ±300 basis points. When a distributor performs outside of

this earnings dead band, a regulatory review may be initiated. As such, a distributor will

be required to report to the Board no later than 60 days after the company’s receipt of

its annual audited financial statements, in the event that the distributor’s earnings falls

short of or exceeds its ROE by 300 basis points. A review of the report will be carried

out by the Board to determine if further action by the Board is warranted. Any such

review would be prospective in nature, and could result in modifications to the IRM3

plan, a termination of the IRM3 plan or the continuation of the IRM3 plan for that

distributor.

Appendix A: Disposition of Residual Balance to USoA Account 1590 or 1595

The 2006 Regulatory Assets process disposed of all balances in the regulatory asset

accounts as of December 31, 2004. The decisions for each distributor resulted in the

disposition of the approved amounts by way of final rate riders and the transfer of the

approved amounts to account 1590. Likewise, any deferral and variance account

balances post December 31, 2004 that have been approved by the Board for disposition

as part of the 2008, 2009 or 2010 cost of service or IRM decisions were disposed on a

final basis, unless otherwise noted and should have been transferred to account 1595.

The opening balances for all accounts cleared in any proceeding must be $0 from

January 1 of the subsequent year. For subsequent applications, any reconciliation of

differences arising from actual versus estimated recoveries, actual versus estimated

interest calculations, errors, omissions or adjustments related to the previous decisions

should not be included in the balances sought for recovery unless the distributor has

received Board approval to do so.


Appendix B: Application of recoveries to principal and interest carrying charges amounts in accounts 1590 and 1595

When final approval for disposition of deferral and variance account balances is

received from the Board, the final approved amounts of principal and interest carrying

charges is transferred to account 1590 or 1595 (as applicable).

The cumulative principal balance transferred to account 1590 or 1595 (as applicable) is

drawn down first by the rate rider recoveries, and interest carrying charges is applied to

the principal balance net of recoveries.

The following approach is used for the application of recoveries (via rate riders) to the

transferred amounts under two scenarios.

Scenario 1: Rate Rider ceases with Principal amount remaining

If the rate rider ends before the principal is fully drawn down, the principal

balance is held static and interest carrying charges is applied to the remaining

principal balance. The approved rate rider flowing from the next application to

dispose of deferral and variance accounts should include the remaining principal

and interest carrying charges.

Scenario 2: Rate Rider ceases with no Principal amount remaining but with Interest

Carrying Charges remaining

The approved rate rider flowing from the next application to dispose of deferral

and variance accounts should include the cumulative interest carrying charge

amounts.


Documents

Chapter 3 of the Filing Requirements for Transmission and … requirements... · Requirements for Transmission and Distribution Applications, dated July 22, 2009. The requirements